Proof of Work - what is it and how does it work?

Proof of Work (PoW for short) is the consensus algorithm on which most cryptocurrencies are based - including Bitcoin. Prevents the same coins from being spent twice, preventing fraud. How does Proof of Work work? Please see our short and specific guide.

The Proof of Work consensus algorithm works in most cryptocurrencies. It was the first algorithm on which Bitcoin was based - and then more altcoinythat arose after him. However, the algorithm itself appeared before 2008 and Bitcoin's debut. It has been used, among other things, to reduce spam because calculations are fast, reliable and cheap.

Be sure to read: Proof of Stake - what is it and how does it work?

Protection against double spending

The primary function of the Proof of Work consensus algorithm is double-spending protection. double-spend). It's just that the same funds are being spent twice, either in error or in deliberate fraud.

Of course, this term functions primarily in the field of cryptocurrencies - you cannot pay twice with the same physical banknote, e.g. for a cinema ticket, and then for a taxi home. However, this is theoretically possible with digital money. After all, they are "only" computer records that can be copied. That is why the PoW consensus algorithm was created - so that such a possibility is only theoretical, and in practice impossible to implement.

Proof of Work is necessary

All cryptocurrency transactions go online. This is their basis - each change of ownership is recorded in the block and must be confirmed by both parties. Without it, the transaction will not be considered valid and will not go into the blockchain. Blockchain will not save it and simply will not be implemented.

Blockchain is an open base that everyone can check - for example, trace the path of each coin from the beginning of its existence. Hence it is known, for example, about the so-called "Whales", or people who have been keeping cryptocurrencies of enormous value, counted in millions of dollars, on their wallets for years. Thanks to this, it is known where they are (i.e. on which wallet) and what path individual cryptocurrency units have traveled.

The Proof of Work consensus algorithm automatically detects transactions that are not valid and stops them. So no one will spend their money or spend the same money twice, because PoW protects itself by using a combination of game theory and cryptography.

How Proof of Work works

W blockchainie all transactions are appended as a block to the previous ones. This is done publicly, so anyone can check the correctness of the block to detect whether, for example, the cryptocurrency has not already been used for another transaction. As long as the confirmation does not come, the block is a candidate, only after it becomes confirmed, i.e. the transaction is completed and the cryptocurrencies can move on thanks to subsequent transactions.

Each block must be passed through the hash function to generate the block hash. It's like a "fingerprint" - unmistakable input data that is separate for each block. If known, the block can be verified. But the data is unknown because it is cryptographically encrypted. This code cannot be cracked, because it would require the computing power of all the computers that exist today in the world. So you have to pass the data through the Proof of Work algorithm.

There is no room for a mistake or discretion here. Only a valid transaction will be committed and it will only happen once. What's more, it cannot be undone - such as withdrawing a bank transfer right after it has been sent. In order for the funds to return the other way, you need to make another transaction, which will be confirmed in the same way. The algorithm will check whether the public keys match the private ones, whether the funds really belong to you and whether you have spent them earlier. If so - the next confirmed transaction will go to the blockchain.